Ask the Mortgage Experts

Buy to Let Investment

Posted on 13 January 2019 by Matthew

I’m looking at making an investment purchase by buying a home and looking to rent it out, is there anything I should know before making my decision?

Hi Matthew,

Depending on your reasons for making this decision there are many benefits in investing with Buy to Let properties. There are definitely a few things to consider and we cover this in our Buy to Let mortgage guide.

For common questions such as deposit - the minimum deposit you would need is 15% but this would not give any choice of Lender or product. A deposit of at least 25% will give you a wide range of Lenders and products to choose from.

With your intention being to let the property you will need to arrange a Buy to Let (BTL) mortgage. If you arrange a residential mortgage with the intention of letting the property this is mortgage fraud and you could lose your property and liberty.

Even with a Buy to Let mortgage you have a choice of repayment methods and can choose either interest only, capital repayment or a mixture of both. Most Lenders now let you pay an extra 10% of the balance outstanding each year without incurring an early repayment charge (ERC), but do check there are a few who do not. Once out of your ERC period you will usually be able to over pay as and when you like.

As far as the size of the mortgage is concerned, this will depend on the rental income. Lenders each have their own calculations, but typically they will want the monthly rental to be the equivalent of 125% of the monthly interest payment. For example: If your monthly interest repayment is £200, then the monthly rental must be at least £250.

You can use our Buy to Let mortgage calculator for a better estimate of how much money you can borrow to fund the purchase of a second home or a property that you intend to let out to tenants

I also believe you would benefit from speaking to one of our independent mortgage advisers. Please call on 0344 346 3672. They will be able to look at your situation and advise you accordingly.

Peter

Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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